The Bizarre New York Sales Tax

If we were forced to identify a tax which most consistently “falls under the radar,” we would have to select the New York sales tax. With sales tax, we can say that familiarity has certainly bred obliviousness: sales tax is one of those extra fees which nearly everyone overlooks and forgets about. In fact, most consumers in the United States never actually pause to think about the full significance of sales tax as a transactional cost; sales tax represents the act of the state (sales taxes are only collected at the individual state level) literally taking a “cut” of private commercial transactions in exchange for public services. When you consider the myriad other taxes imposed by state governments, you can easily begin to wonder whether sales tax should be viewed as unnecessary.

Sales taxes are a type of “excise” tax, and excise taxes are themselves a type of “indirect tax.” Indirect taxes are those which are levied on a transaction rather than on a particular individual; along with sales taxes, use taxes and value added taxes are also types of excise taxes. As a subset of excise taxes, sales taxes themselves can fall into one of either two subcategories, ad valorem or specific. Ad valorem is a Latin word which translates to “according to value.” Accordingly, ad valorem sales taxes are based on a percentage of the value, or price, of the product, whereas “specific” sales taxes impose a fixed tax amount whenever a product is bought, regardless of price.

Sales taxes have been imposed in the U.S. for a lot longer than has the income tax, in part because imposing sales tax has always been easier for the states. In New York, residents face a plethora of different sales tax rates depending on their physical locality, as well as the nature of the item being purchased. In this article, we will identify a number of items subject to New York sales tax; we will also identify and discuss several notable items which are exempt from New York sales tax. In the end, hopefully readers will take away a clearer sense of the complex sales tax system in New York.

The Layers of the New York Sales Tax System

When viewed from a national perspective, New York taxpayers truly are a population saddled with an unusually high tax burden. In the State of New York, the sales tax system is layered, so New York taxpayers face an initial flat state sales tax rate of 4%, but then must face an additional sales tax which varies according to region. So, for instance, New York taxpayers living within the city of Syracuse pay a total sales tax rate of 8% ― they pay the 4% statewide flat rate, but then must pay an additional 4% which is the extra rate added by the local county. The lowest combined sales tax rate is currently 7% (collected in several distinct jurisdictions) and the highest combined rate is currently 8.875%. This high rate of 8.875% is actually the maximum combined rate currently allowable for New York sales tax (when both the flat rate and tax jurisdiction level rates are taken together).

In addition to the statewide flat rate and the county level rates, New York taxpayers may also face another city level tax on top of these other sales taxes, and so certain residents can end up paying over 8.875%, in total, on one transaction. In total, there are 75 local tax jurisdictions within New York State. So, for instance, Yonkers residents face an additional local city sales tax on top of the other sales taxes imposed by the state and county government. This same situation applies to residents of the cities of New Rochelle, White Plains and several other New York cities.

A Partial List of Sales Taxable Items

There are many, many items which are subject to sales tax in the State of New York. In general, tangible personal property is taxable unless specifically exempt. Products and services such as energy, refrigeration and telephone services, hotel services, food and beverages which are pre-packaged or prepared by restaurants, taverns or caterers, and various other services are also subject to sales tax.

Tangible personal property items subject to sales tax in New York State include:

As if the complexity and lack of intuitive sales tax categories weren’t bizarre enough, New York taxpayers need to beware of a specific New York sales tax practice known as “cheesboarding.” Under the Cheesboard Rule, New York has taken the position that when taxable and nontaxable items are sold together, for a single price, the aggregate amount of the sale becomes sales taxable, despite the presence of nontaxable items.

Exempt Items

Not all products and services are subject to the New York sales tax, though, as mentioned earlier. In fact, certain items are specifically exempt from New York sales tax. The following is a partial list of categories which are exempt from sales tax in New York: general clothing, grocery food, manufacturing raw materials, manufacturing utilities and fuel, medical devices, newspapers, periodicals, digital products, custom software (downloaded), and custom software delivered on tangible media. Again, this is an incomplete list, so residents should consult the New York State Department of Taxation and Finance website for the full list.

As you can easily see, the New York sales tax system is more than just a bit complicated, it’s downright bizarre. The reality is that the New York sales tax is a very layered, complex structure that forces New York taxpayers to face multiple sales tax rates on a large variety of items. Given the complexity of the system, it’s not uncommon for business owners to throw up their hands in confusion and contact a CPA or New York tax attorney to help them navigate through the process of withholding and remitting New York sales taxes. If you’re in need of consulting services in this area or have another tax issue, contact one of the tax attorneys at Mackay, Caswell & Callahan, P.C. and receive experienced counsel right away.

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